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The equity gap is growing- small businesses worldwide are finding it harder to obtain needed financing, as has been well documented. For some companies, especially those in emerging economies with few resources, the only alternative is to seek funding from wealthy individual “angel investors” who are willing to invest in seed enterprises that are too risky for venture capitalists.

An article in the Economist details the role these angel investors play in funding startup enterprises, especially as they are becoming an effective bridge to expansion stage funding where investment firms are more willing to take over. The story of the finance gap that exists between an enterprise's startup stage and VC investment is similar to that of the major banks giving microloans; the large fixed costs associated with an investment along with the greater risk of failure small startups have deter VCs from putting money into these enterprises.

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Formal, profitable SME financing is gaining momentum in India, as two articles in last week’s Indian financial press indicate:

ICICI Venture mulls 4 specialized funds
New SME Fund to Launch in India

Small and medium sized enterprise investment funds are not new; we’ve discussed the Shell Foundation’s successful African SME fund in the past. Other previous posts have covered the unmet demand for mesofinance. Last week’s announcements by BTS Investment Advisors and ICICI indicate to me that major players in commercial finance have finally begun to understand the need for and potential in SME finance.

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An important event is coming up for investors interested in the booming, capital-hungry markets of India, China, South Africa and other emerging economies: The Emerging Markets Private Equity Association is hosting its annual forum in London November 30th through December 1st.

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“It makes good journalistic fodder, but it’s just the same story over and over!” This was fellow blogger Rob Katz’s comment when I called him about posting a story on the Strappity-do-da company. His frustration was similar to that expressed by Ethan when he complained about journalists covering essentially the same microfinance storyline instead of getting to real scalable models at the BOP. So what was the problem with Strappity-do-da, an enterprise that sells beaded bra straps sourced from a group of women in Colombia with handicraft skills?

“I’m tired of hearing feel-good stories about Americans traveling to a country, finding a community that produces a random handmade item, and selling them to their wealthy friends… it makes for a good human interest piece, and it’s great that they’re doing that, but it’s not a solution.” Rob continued ranting before slamming the phone. Okay so he didn’t slam the phone- and he doesn’t talk like that either, being a level-headed economist-type. I used some rhetorical flourish there.

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Everyone agrees that microfinance is the coolest thing since sliced bread.  That’s why in the last two months we’ve seen it covered by the Financial Times, Reuters, The Globalist, The New York Times, The Economist, The LA Times, Business Week, CNN, and The Times of London.  And in all likelihood there are other articles still hovering beneath our radar. 

I must confess that at first I was excited to see the mainstream media weighing in on development issues affecting the base of the economic pyramid.  I held the opinion that microfinance articles—no matter how repetitive and formulaic—attract publicity to an important cause that draws less attention than Paris Hilton’s latest sexcapade.  But I’ve changed my mind.

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